Abstract:

In order to hold the global warming below 2 degrees Celsius, also developing countries are required to urgently limit their greenhouse gas emissions. However, developing countries tend to fear that climate policy measures could harm their development.

Assessing whether or not such worries are justified requires deep understanding of the drivers of economic development. On the one hand, it is currently widely accepted that societal capabilities, including aspects like institutions, various infrastructure, human capital and social capital, are the determinants of long-term economic performance. On the other hand, development is known to be accompanied by structural change. Recent empirical evidence provides support to the hypothesis that capabilities and structural change are fundamentally linked. It seems that the expansion and the diversification of production contribute to capabilities which then enable further diversification into productive activities that require these capabilities.

This thesis seeks to explain how societal capabilities, structural change and development interact, and what this interaction implies for climate policy. A multi-sector endogenous growth model driven by the interplay of capabilities and structural change is proposed. The model implies that if climate policy interferes with structural change by harming the operation of some sectors, economic growth may temporarily slow down or even permanently stagnate. Hence, climate policy can threat development, whereby poorer countries are more severely affected. To avoid adverse effects, this theory suggests a focus on capabilities in policy design.Jotta ilmaston lämpeneminen voitaisiin rajoittaa kahteen asteeseen, myös kehittyvien maiden on pikaisesti rajoitettava kasvihuonekaasupäästöjään. Useat kehittyvät maat kuitenkin pelkäävät, että ilmastopolitiikka voi vahingoittaa niiden taloudellista kehitystä.